Economics for Sustainable Business for GST- myassignmenthelp

Question: Discuss about theEconomics for Sustainable Business for GST. Answer: GST stands for Goods and Services Tax. It is a revolutionary action in the taxation system of the Indian economy. This is a comprehensive, destination-based, multistage, indirect tax, to be imposed on every value addition of the goods and services produced in the country. The main purpose of this law is to replace the previously existing several indirect taxes and introduce a unified tax system. This tax system came into effect on 1st July, 2017. There are few slabs for the GST rates, and those are 0%, 5%, 12%, 18% and 28% (Roy, 2017). According to the report by Mishra (2017), the solar energy store manufacturers and the power sector of India have urged the government to reduce the GST on batteries from 28% to 5%, as this is a vital component for power generation, sustainable energy and Electric Vehicles. Since, it is an indirect tax, the burden is shifted onto the customers by the producers through higher price of the product (Thorat, 2017). Figure 1: Impact of GST on the price of the battery (Source: Author) From the above diagram, it can be explained that, initially, the demand and supply of the batteries was D1 and S respectively and initial equilibrium was at E*. After the imposition of 28% GST on the batteries, the demand for the batteries falls to D2, while supply remains fixed. The line AD denotes the tax amount, i.e. 28% tax. It is levied on the price. The consumers are paying a higher price due to GST, which is denoted by P5 and the producers are getting a lower price, denoted by P2. Hence, consumer surplus is denoted by the triangle P6P5D and producer surplus is denoted by P1P2A. The tax revenue is denoted by the rectangle AP2P5D. The deadweight loss is the area ADE*. The quantity sold would be reduced from the initial quantity. When the GST falls to 5%, the demand for the batteries rises to D3. In this situation, the tax revenue for the government falls, and is denoted by the straight line BC. In this scenario, the consumers pay a lower price than for 28% GST, which is shown by P4. At the same time, the producers get a higher price than earlier, denoted by P3. BCP4P3 refers to the tax revenue and CDE* denotes the deadweight loss. The consumer surplus and producer surplus both increase, shown by the area P6DP4 and P1P3C respectively. Thus, for a lower GST, the buyers and sellers will be benefitted but the government revenue falls. The sales volume would increase under 5% slab (Nguyen, Onnis Rossi, 2017). Electric vehicles (EV) are now being promoted by the government for sustainability. To reduce the pollution and environmental damage, and for a sustainable future, the government of India has set a goal to reach 100% Electric Vehicle nation by 2030. Hence, the government has decided to keep the cars under the 12% GST slab. However, the rechargeable battery is one of the major inputs of EVs. The cost of the battery comprises of almost half of the total price of the vehicle (Businesstoday.in, 2017). Hence, the Electric vehicles are quite costlier than the regular petrol, diesel and hybrid cars as it uses renewable source of energy. If the price of the battery is increased due to the 28% GST, then the price of the EVs will shoot up significantly, and its demand and sales would fall. If the GST on batteries falls to 5%, then the price for the battery would go down, resulting in the fall of price for the EVs. Thus, its demand and sales would increase in the long run. Thus, reducing the GS T rate would bring more profit to the EV manufacturers. The government of India has levied 28% GST and 1% to 15% cess on the petrol and hybrid cars. It has made these cars significantly costly. The petrol cars run on petrol, which is a non-renewable source of energy. The hybrid cars have both the battery as well as the fuel combustion engine. Both of these cars use batteries along with fuel combustion engines. However, these cars are not solely dependent on rechargeable batteries. Hence, the price rise of the battery due to 28% of GST will not have much effect on the price of the petrol cars. However, if the GST falls to 5% slab for the batteries, the petrol cars and the hybrid cars would be slightly benefitted. The cars have become already expensive due to a higher GST and a GST on the batteries would make these cars little more expensive. However, the petrol cars are relatively inelastic to the price of the batteries; therefore, the price effect on the petrol car is relatively lower (Bloomberg, 2017). However, in all the cases, the car companies would shift the burden of the tax on the consumers by charging higher prices. The initiative by the government to encourage the usage of more electric cars by 2030 is definitely pushed by lowering the GST slabs for the Electric Vehicles. By keeping a lower rate for EVs, the government is supporting the goal of making the country completely dependent on EVs. This initiative is taken to reduce the pollutions caused by the conventional fuel. Hence, for a sustainable future, reduction of the numbers of petrol and diesel cars is necessary. Therefore, reduction of GST to 5% on the price of the rechargeable batteries would reduce the price of the electric cars and its demand would rise (Businesstoday.in, 2017). However, according to some experts, the government should have waived the levy on the batteries as well as on the electric cars for the initial 3-4 years. This would have encouraged more people to buy the electric cars, and the companies would get first hand consumer experience, feedback and customer base. This in turn would have helped the markets to increase their efficiency and expertise in the manufacturing of the electric vehicles. In the long run, this venture would not only have helped the government to develop an advantage in the automobile manufacturing, but would also have helped in achieving the goal of being a 100% Electric Vehicle nation before 2030 (Prasad Agarwal, 2017). References Bloomberg. (2017).GST: Highest Rate For Hybrids, Electric Vehicles Get Tax Incentive.Bloomberg. Retrieved 2 September 2017, from https://www.bloombergquint.com/gst/2017/05/19/gst-highest-rate-for-hybrids-electric-vehicles-get-tax-incentive Businesstoday.in. (2017).GST impact: Will Indian government's ambitious push to electric vehicles kill hybrid segment?.Businesstoday.in. Retrieved 2 September 2017, from https://www.businesstoday.in/sectors/auto/gst-impact-hybrid-car-segment/story/255850.html Mishra, T. (2017).Solar energy storage manufacturers want lower GST levy on batteries.The Hindu Business Line. Retrieved 2 September 2017, from https://www.thehindubusinessline.com/economy/policy/solar-energy-battery- gst/article9758357.ece Nguyen, A. M., Onnis, L., Rossi, R. (2017).The Macroeconomic Effects of Income and Consumption Tax Changes(No. 2017008). Prasad, G., Agarwal, M. (2017).Govt sets low GST rate for electric vehicles to boost sales, but its not enough.https://www.livemint.com/. Retrieved 2 September 2017, from https://www.livemint.com/Industry/OcpXxo4ix2qIQeljYbNGgK/Govt-sets-low-GST-rate-for-electric-vehicles-to-boost-sales.html Raj, R. (2017). Goods and Services Tax in India. Roy, A. (2017). GST in India: a Layman's Guide.Journal of Commerce and Management Thought,8(2), 219. Thorat, Y. R. (2017). GST and Indian Economy.International Research Journal of Multidisciplinary Studies,3(7).